Today is Blue Monday and considered to be the most depressing day of the year which could explain why the Asian trading session was so downbeat and cautious, in stark contrast to the end of last week which saw evidence of an improving US economy and the calming of eurozone debt fears following some generally well bid bond auctions which led to a surge in the euro. However, this weekend’s announcement from China that it has raised its RRR (reserve requirement ratio) by 0.5% with effect from 20th January has caused markets overall to stumble. In the forex market the euro is, once again, looking weak and falling back from its Friday high of 1.3457 to trade at time of writing at 1.3277.
With US markets closed today for Martin Luther King Jr holiday we can expect thin trading volumes as the trading day progresses and little data likely to move the markets. Eurozone ministers are meeting on Monday and traders will be on the lookout for any news regarding the current debt crisis.
From a technical perspective Friday’s short squeeze in the euro vs dollar looks to be unwinding as the pair pullback from the resistance area in the 1.3450 zone, making it the fourth time the price has fallen back from this key resistance level. However, euro bears are still not out of the woods (pardon the allusion to Goldilocks!!) and the key here will be the stance of German in the two day meeting currently in progress in Germany. The preferred, and only viable, solution to the European debt problem is the so called “euro bond” which the German Finance minister made clear on Friday that he was strongly opposed to and should his views hold sway, with a consequent failure to agree a plan, then market reaction could be euro negative. However, should the Germans agree to this proposal then this would calm the markets, reducing the possibility of further bailouts for countries such as Spain and Portugal, with a return to bullish sentiment towards the euro. So until this meeting concludes and with thin markets today we need to take a wait and see approach over the next couple of days.